Gyan Sangam was a morale booster for PSU banks, said Ram Sangapure, Executive Director of Punjab National Bank.

Discussing the two-day bankers’ retreat, which saw PSU banking officials conduct various seminars and group discussions on key issues such as ensuring greater autonomy for banks, improving risk management practices, their recapitalization needs, improve asset quality and curb black money among others, Sangapure said a lot of positive comments have come from the summit, especially Prime Minister Narendra Modi’s statement making it clear that there will be no interference from PMO. “The PM was categorical on autonomy of banks,” he said.

VR Iyer, CMD, Bank of India, said the exercise was to draw blueprint to improve efficiency and discussions included improving performance management system.

Below is the transcript of Ram Sangapure and VR Iyer's interview with Sonia Shenoy & Reema Tendulkar on CNBC-TV18.

Sonia: What exactly the Finance Minister committed to whether they was any commitment to the PJ Nayak recommendations or report? What took place really at that Sangam?

Sangapure: This Sangam was a first-of-its-kind in the history of public sector banking in India. Wherein Finance Ministry, Reserve Bank of India played a host to all the top level banking executives and they were perfect host actually. The State Minister of Finance was there continuously for a two days along with us he was in fact participating in all the group discussions which we had.

The Finance Minister was there and he also participated in discussions, he gave advice on certain issues. Honorable Prime Minister participated in it and he had lot of expectations from the banking industry. This was unique in its nature and wasa moral booster to the public sector banking. In fact for a last couple of quarters public sector banks were receiving a brickbat from all quarters for increasing non performing assets (NPA). From that background probably this can be considered as a morale booster to PSB executives.

Sonia: Is it true that the complete autonomy of public sector undertaking (PSU) banks was something that a Prime Ministers spoke about and if yes how would this be achieved going ahead?

Sangapure: Prime Minister made it very clear that there will not be any interference from the Prime Minister's (PMOs) Office. That itself is an indication that not only from a PMO but from all other government offices there should not be any interference in the banking day to day administration. So far as political interventions are concerned Prime Minister was categorical saying that where ever a necessary political intervention is needed and it is good for the development of banking industry and the economy. So, from perspective of autonomy he is very clear that banks will function as professional entities, government will not interfere in day to day administration and from that perspective there is a one step forward towards autonomy of public sector banks.

Reema: What was the discussion surrounding the PJ Nayak Committee recommendations? Has the finance ministry agreed to them? Can you walk us through the specifics?

Sangapure: The recommendations and the decisions taken by the ministry were not supposed to discuss on those issues because the ministry has a prerogative to announce those decisions in a particular point in time. However, I can only emphasise that all bankers were spilt into groups and major issues facing by the public sector banks were discussed by different groups.

Representatives from Reserve Bank of India, experts from industries (including members of the Nayak committee), department of financial services, Centre for Advanced Financial Research and Learning (CAFRAL), from National Institute of Banking Management (NIBM) all participated in a thorough discussion on all these issues. After almost about a whole day of discussion, in the evening probably one agenda was submitted to the Prime Minister. The agenda was before discussed with the minister of finance as well.

When Prime Minister came we finalised certain points and only those points were discussed in his presence. Prime Minister assured that Finance Minister will look into all the suggestions given by banking industry and in due course of a time probably the Finance Minister and the Prime Minister and the ministry will make an announcement on some of these issues.

Though it is not very clear that whether all recommendations or some will be accepted by the ministry but definitely there was a very positive intention of the ministry, even Prime Minister, even honorable Finance Minister, even RBI governor. They were very positive about the discussions which happened during this conclave and the suggestions given by the banking industry. There will be a positive development going forward definitely.

Sonia: The Finance Ministry has asked bankers to submit a blue print in a particular timeframe of what the bankers should be doing to address the issues? In your own sense what are the low hanging fruit that can be addressed with immediate effect now?

Iyer: The entire exercise actually was towards drawing a blueprint, how to improve the efficiency of the public sector banks. In fact it was really a collaborative effort experts from the field, experts from the banking community from the Development Financial lnstitutions [DFls] from the policy makers all of us joined together to discuss on six of the issues identified by DFIs.

In fact I should say that this is first-of-its-kind, one of its kind in fact in our history after I joined the bank in fact. There was a discussion for almost three to four hours on each of the issues. Every committee came out with their specific recommendations and ultimately what we did was what improvements will the banking community bring about immediately over a period of one year, then one to three years and what we seek from the government of India to improve the overall public sector banks efficiency.

Then there was a very positive climate, the minister of states of finance stayed through out the discussions. In fact the Secretary Mr Adhia also with us, giving us good points. We have given about seven point’s agenda to the government in fact we had conveyed in detail to him and the issues which we raised is actually a multi pronged one.

On the part of the bankers we said that we will reorient some of the public sector banks. In fact you would really see the entire public sector banks are fragmented in nature. All of them giving the same type of service without differentiating themselves. So the first job we cut out for ourselves was we will differentiate ourselves in the niche areas. We will also go towards optimising the capital in fact where ever possible we will reject the portfolio assets and then go towards the capital efficiency.

Two, what we said was banker would actually build the people capabilities, invest in the capacity building because all of us know that heavy retirements are taking place in the past three to four years and it would go on for the next two or three years. So there is a need that we train our HR. Second one there in HR was to introduce the performance management system and also incentives to improve the capabilities.

Today what is happening is even the appraisal forms are as per the direction of the ministry of finance. Banker have got restrictions in terms of recruitment we can not go to the management business schools and hire the business talent where as the private sector banks can go. It was also felt that communications between the internal staff or internal customers, you may call also need to improve substantially. So we would take all those steps to do that.

Third what we said that on the part of the bankers we will do whatever transformation that is possible using the digital media and leveraging the technology to the benefit.

Fifth what we said that there will definitely be an improvement we will bring about in terms of enhancing the risk management capability, improvement that would be in the appraisal standards, proactive monitoring standards, move towards risk based pricing in fact that is one of the very important element all of us need to do going towards the RAROC of capital implementations.

The next one what we gave for ourselves to the bankers is we told that we will also try to improve the infrastructure for recovery in the sense there are certain deficiency when we go over to the debt recovery tribunals (DRTs) and Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI) and we will remove all of them together.

On the part of the government we had about six to seven agendas the first one was towards creating a level playing field for us in terms of priority sector obligations because today what is happening is Reserve Bank of India gives us targets in terms of number of accounts also possessing in the priority sector.

Sonia: Was there any talk of government asking the PSU banks to form a bank specific holding company? If that happens does this mean that the government has given up on the prospects of an omnibus holding company now?

Iyer: There is some misunderstanding which has come in one of the newspapers. I also did see in the morning. The discussion that took place was the government would create a Bank Board Bureau (BBB), this will be a professional set of board members and all the experts from the different fields would be there along with the eminent bankers this does not require any legislative amendments.

The power for this board will be the mandate will be largely to professionalise the existing board members, empower them strongly and they also would takeover the constitution and reconstitution of the board going forward and on existing ownership function of the ministry of finance will come over to them this will be only the first phase and this would ultimately lead or transit to forming a bank investment company which the Nayak committee said.

Bank investment company formation require certain amendments in the laws and all the banks would there after come under the Company Law Board and that would in fact help the empowered board to take call on differentiate strategy on the capital planning strategy.

Sonia: By when do you think this bank investment committee could be formed? Any kind of timeline was spoken about at the meeting.

Iyer: Banking investment committee as I told you requires amendment in the law. So then it may take six to nine months for the entire thing to do. However, in the interim this whole core will be formed in what we said as Bank Board Bureau (BBB), this will be formed and takeover some of the functions to empower the board. That is the ultimate idea and ultimate is we will move towards the bank investment company which would strengthen not only the board but also differentiate a strategy, capital raising strategy, investment strategy and government of India will only become an investment company.

This board also will have the powers for the selections of the ED’s and the MD’s going forward to recommend the names to Department of Financial Services (DFS) for further onward processing so that is the whole idea about it.

Reema: What was discussed in the PJ Nayak recommendations will it be implemented or will only few of them be implemented?

Iyer: We did discuss about the PJ Nayak recommendations; most of the recommendations government is very seriously looking into it on the governance matter and on the formation of this Bank Investment Committee (BIC). These two were largely discussed and going forward we are confident from the proceedings it would get implemented. They are being very seriously looked into and they would initiate the required steps sooner.